WARNING:
This Digest was prepared for debate. It reflects the legislation as
introduced and does not canvass subsequent amendments. This Digest
does not have any official legal status. Other sources should be
consulted to determine the subsequent official status of the
Bill.

The Bill makes minor amendments to the method of
the calculation of the potential liability of families who receive
fringe benefits to pay the Medicare surcharge. The amendments are
of a technical nature and do not alter the substantive grounds for
liability to pay the surcharge.

The Medicare levy surcharge was introduced to
provide a disincentive for higher income earners to rely on the
Medicare system and not take out private health insurance. The
surcharge, which is not payable where a person or family has
private insurance which covers fees and charges for hospital
treatment, has applied from the 1997-98 year of income and is
payable by:

an individual without dependants when their income exceeds $50
000 pa (subject to indexation), and

$100 000 pa (subject to indexation) where the family surcharge
threshold applies.

In the latter case, where there are 2 or more
dependent children, the threshold is increased by $1 500 for each
additional child.

In addition to potential liability for the
surcharge, during 2000-01 higher income earners will also be liable
for an increase in the levy of 0.5% or 1%, depending on income, for
the 'East Timor levy'. As with the basic levy, there are phasing-in
thresholds for the surcharge and East Timor levy to ensure that the
additional payments do not result in lower net income once the
threshold level is reached.

As an incentive for people to retain or take up
private health insurance, a 30% rebate on premiums for hospital and
ancillary cover was introduced from 1 January 1999. For 1999-2000,
the rebate is estimated to cost $1.617 billion(1) As at
31 December 1999, approximately 6 million people were covered by
private hospital membership.(2)

For the 1999-2000 and later income years,
employers have been required to detail the amount of certain fringe
benefits on group certificates. The requirement applies to fringe
benefits other than those with a value of less than $1 000, car
parking, meal entertainment, remote area housing and a limited
number of other, minor benefits. The value of the non-exempt
benefits is not included in assessable income but is used for a
number of other calculations, including the Medicare levy
surcharge. The result is that where a person engages in salary
sacrifice to lower their assessable income they will have the value
of the fringe benefits provided as part of the salary sacrifice
included to determine if they are liable for the surcharge (A
New Tax System (Medicare Levy Surcharge - Fringe Benefits) Act
1999).

In calculating the family assessable income to
determine if the surcharge is payable, the A New Tax System
(Medicare Levy Surcharge - Fringe Benefits) Act 1999 provides
that both the person's and their spouse's taxable income and
reportable fringe benefits are to be taken into account. The
calculation of income can include amounts from a number of sources,
and section 15 deals with situations where the family threshold
applies for the whole of the year while section 16 applies if the
family threshold applies for only part of the year.

Items 2 and 4 of the Bill will
amend these sections to clarify how a spouse's income that includes
amounts calculated as a presently entitled beneficiary of a trust
estate is to be treated. (Such an amount is currently taxed in the
hands of the trustee as it has not been distributed to the
beneficiary even though the beneficiary is presently entitled to
the amount. This way of taxation is an anti-avoidance measure.) The
clarification does not affect the amount that is to be included in
the calculation and is substantially the same as that currently
contained in subsection 16(5) of the Act. The amendments mean that
the treatment of such amounts will be consistent regardless of
whether the amount falls within section 15 or 16.

The other amendments proposed by the Bill
replace the current dollar expression of the amount above which the
surcharge is payable for a family with the expression 'the family
surcharge threshold'. This will allow the amount as expressed in
this Act to be automatically altered when the threshold is altered
either in the legislation dealing directly with the level of the
threshold or by indexation.

Chris Field
11 April 2000
Bills Digest Service
Information and Research Services

This paper has been prepared for general distribution to
Senators and Members of the Australian Parliament. While great care
is taken to ensure that the paper is accurate and balanced, the
paper is written using information publicly available at the time
of production. The views expressed are those of the author and
should not be attributed to the Information and Research Services
(IRS). Advice on legislation or legal policy issues contained in
this paper is provided for use in parliamentary debate and for
related parliamentary purposes. This paper is not professional
legal opinion. Readers are reminded that the paper is not an
official parliamentary or Australian government document.

IRS staff are available to discuss the paper's contents with
Senators and Members
and their staff but not with members of the public.

Except to the extent of the uses permitted under the
Copyright Act 1968, no part of this publication may be
reproduced or transmitted in any form or by any means, including
information storage and retrieval systems, without the prior
written consent of the Parliamentary Library, other than by Members
of the Australian Parliament in the course of their official
duties.